Courter Financial, LLC
Founder and Principal
Mack Courter is the Founder and Principal of Courter Financial, LLC. Mack helps his clients design a financial road map to bridge the gap between where they are financially and where they want to be. He specializes in working with pre-retirees and retirees who want to maintain their current lifestyle and ensure that their money lasts through their golden years. Investors who have used his advice are those from all walks of life including physicians, pastors, teachers, plumbers, and small business owners. His clients are typically good neighbors, responsible individuals and good family stewards.
Before starting his own practice in 2005, Mack worked for Ameriprise Financial, then known as American Express Financial Advisors. Mack is a CERTIFIED FINANCIAL PLANNER™ professional, which required him to complete a professional course of study and pass six rigorous exams, proving his knowledge in the areas of investment, retirement, insurance, tax, and estate planning. He achieved this distinction at the age of 23, making him one of just 3% of all CFP®s to obtain the designation prior to age 30. Mack is a registered investment advisor in the state of Pennsylvania. The firm is independently owned and operated. There are no conflicts of interest regarding compensation to cloud Mack’s decision-making process and client recommendations.
Mack lives with his wife and four daughters in the Bellefonte area. When he’s not advising his clients, he enjoys spending time relaxing or traveling with his family, and serving in his local church.
Mack Courter's posts are for informational purposes only, and are not meant as specific investment advice. Investing involves risk, including the possible loss of principle and the fluctuation of value. Past performance is not a guarantee of future results.
Generally, the answer is no. However, if you converted an IRA or a Qualified Plan to a Roth, the income realized on the transaction is included for purposes of modified AGI. Check out this worksheet on the IRS's website: https://www.irs.gov/publications/p590a/ch02.html
The advantage of the annuity is the guarantees it provides for principal protection and lifetime income, which are guarantees a mix of stocks and bonds cannot provide. However, there are drawbacks to the annuity. First, a lot depends on what type of annuity it is. If it is an immediate annuity, you will no longer have access to your principal (unless there is something called a commutation clause), and the income payments will usually stay the same for life, exposing you to inflation risk. If it is a variable annuity with a lifetime income rider, it will generally have high fees. While it is possible for the income stream to increase over time if the account value rises, the fees will serve as a drag on the portfolio, and mitigate those inflation adjustments. If it is an equity-indexed annuity with a lifetime income rider, there will be caps on the maximum return you can make per year, or spreads which give the insurance company a "cut" of your returns. For both the variable and the equity-indexed annuities, there will probably also be surrender charges for a number of years. All of that being said, investing a portion of your IRA in an annuity may provide you with some peace of mind and a pension-like income. But, make sure you look at the fine print, which it certainly seems you are doing.
I would agree with Mr. Baker that bonds have a place in most portfolios, even with the risk of rising interest rates. You have touched on the reason why with your last question, bonds reduce your portfolio risk over time. High quality bonds generally do best when the economy is in recession, while stocks generally do best when the economy is expanding. Since we never know when the next recession will hit, it's wise to have some of your portfolio in bonds at all times.
Mr. Baker gives some good rules of thumb for allocations based on your risk tolerance. There are some ways to reduce the risk of rising interest rates in your bond portfolio. They include using ETFs or mutual funds that invest in short duration bonds, floating rate bonds, or have fixed maturities such as Guggenheim's Bulletshares. There are even ETFs that attempt to hedge out the interest rate risk, although they are untested in a rising rate environment. Rising interest rates don't necessarily have to negatively effect stocks, at least not initially. However, after a while, they do. Highly respected economist David Rosenberg has been saying lately that the Fed has tightened 13 times since World War II. In 10 of these instances, a recession has resulted. In recessions, stocks go down.
Investments make money in one of 3 ways:
1. Interest, which is paid on checking, savings, money market accounts, CDs, bonds, etc.
2. Dividends, which are paid on stocks, real estate investments, etc.
3. Capital Gains, which results when you sell an investment for a higher price than you bought it for.
If you invest in an index fund, ETF, or mutual fund, they pay out any interest and dividends at specified times (ie. the dividend yield), as well as capital gains. ETFs and Index funds usually distribute lower capital gains since they don't turn over their investment holdings as much.
Yes, if the index fund has an average annual return of 7% after it's expenses for 50 years, then the future value that the calculator comes up with will be what you have. My calculator comes up with $294,570.
There are a couple things to keep in mind though. First, while 7% is a conservative and reasonable estimate, it isn't guaranteed. Second, make sure you instruct the fund company/custodian to reinvest the dividends and capital gains in the fund. If you take those distributions in cash, even if the fund averages 7%, your return will be lower.
Good luck investing!
Mr. Kinney gives a great answer to this question. Here are a couple additional points I would add. First, a dividend ETF typically will distribute the quarterly dividend. You can ask your custodian to have those dividends reinvested, and they should be able to do that for you. I'm not aware of a dividend ETF that publishes the exact amount of qualified dividends. You would need to look at the underlying holdings to get an estimate, using the guidelines mentioned by Mr. Kinney. The largest dividend ETF, iShares Select Dividend (DVY) has some REITs in the portfolio which aren't qualified. The second largest dividend ETF, Vanguard High Dividend (VYM) doesn't include REITs. Of course, your 1099 at the end of the year will break down the qualified and unqualified dividends. Disclaimer: I mention DVY and VYM for illustrations only, and am not recommending them.